Advanced Search
MyIDEAS: Login to save this paper or follow this series

Identifying Fiscal Policy Transmission in Stochastic Debt Forecasts

Contents:

Author Info

  • Kei Kawakami
  • Rafael Romeu

Abstract

A stochastic debt forecasting framework is presented where projected debt distributions reflect both the joint realization of the fiscal policy reaction to contemporaneous stochastic macroeconomic projections, and also the second-round effects of fiscal policy on macroeconomic projections. The forecasting framework thus reflects the impact of the primary balance on the forecast of macro aggregates. Previously-developed forecasting algorithms that do not incorporate these second-round effects are shown to have systematic forecast errors. Evidence suggests that the second-round effects have statistically and economically significant impacts on the direction and dispersion of the debt-to-GDP forecasts. For example, a positive structural primary balance shock lowers the domestic real interest rate, in turn raising GDP and lowering the median debt-to-GDP projection by an additional 10 percent of GDP in the medium term relative to prior forecasting algorithms. In addition, the framework employs a new long-term (five decade) data base and accounts for parameter uncertainty, and for potentially non-normally distributed shocks.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=24835
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/107.

as in new window
Length: 35
Date of creation: 01 May 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/107

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Debt sustainability; IMF; Economic forecasting; Public debt; fiscal policy; fiscal reaction function; forecasting; fiscal balance; fiscal shocks; projection period; bootstrap; government spending; measures of dispersion; instrumental variable; tax base; fiscal performance; statistic; dispersion measures; time series; fiscal stance; covariance; statistics; expenditure policy; estimation period; fiscal response; probability; goodness of fit; significance levels; equation system; simulation model; fiscal years; fiscal crowding; normal distribution; random walk; fiscal reaction; equation; primary fiscal balance; discretionary fiscal policy; confidence interval; fiscal sustainability; fiscal difficulties; fiscal consolidation; fiscal outcomes; annual budget planning; fiscal benefits; estimation result; fiscal measures; fiscal affairs department; structural fiscal; equations; parameter estimate; vector autoregression; measurement error; fiscal rules; debt service; fiscal policy decisions; dummy variable; fiscal position; probability distribution; fiscal balances; fiscal problem; government spending shocks; empirical framework; fiscal projections; fiscal impact; empirical specification; fiscal affairs; fitted value; correlation; budget deficit; linear models; parsimonious model; tax changes; fitted model; measurement errors; tax policy; fiscal variables; tax systems; primary expenditure; monte carlo simulation; cyclical fiscal policy; functional forms; fiscal adjustment; fiscal crises; statistically significant effect; skewness; annual budget; autocorrelation;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Luiz de Mello & Diego Moccero, 2006. "Brazil's Fiscal Stance during 1995-2005: The Effect of Indebtedness on Fiscal Policy Over the Business Cycle," OECD Economics Department Working Papers 485, OECD Publishing.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Fuad Hasanov & Reda Cherif, 2012. "Public Debt Dynamics," IMF Working Papers 12/230, International Monetary Fund.
  2. Gustavo Adler & Sebastian Sosa, 2013. "External Conditions and Debt Sustainability in Latin America," IMF Working Papers 13/27, International Monetary Fund.
  3. Aleksandar Zdravkovic & Aleksandra Bradic-Martinovic, 2012. "Public Debt Sustainability in Western Balkan Countries," Book Chapters, Institute of Economic Sciences.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:11/107. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.